Download File use market structures ppt

DIFFERENT TYPES OF
MARKET STRUCTURES
What Are Markets?
A market is where buyers and sellers:
–meet to exchange goods and services.
–are affected by some level of competition.
The market may be in one specific place
or
It does not exist physically at all.
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1. Perfect Competition
BEFORE WE BEGIN!!
This is a theoretical situation.
NO TRUE Perfectly Competitive Market
exists.
IT IS ONLY A THEORY!
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The 5 conditions of perfect competition
1)
Many Buyers and Sellers
No single buyer or seller can influence the price.
2)
Identical products. (EX: Salt, Flour, Commodity, Corn)
• Commodity: product that is the same no matter who produces it
3)
Informed Buyers and Sellers:
Both buyers and sellers must have information
4)
Easy to enter and exit. Sellers are free to enter the
market, conduct business and free to leave the market.
Barriers to Entry: any factor that makes it difficult for a new firm to enter a market
such as Start Up Cost; which are expenses a firm must pay before it can begin to
produce and sell goods
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Perfect Competition
 Each individual firm is too small to influence
prices.
 Price becomes fixed to everyone in the industry.
EXAMPLE: Think about your composition book,
do you care what brand it is or how much it was?
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2. Monopoly
A market dominated by a single seller
Price maker. (set their own price, without regard to supply and
demand, demand will not decrease with price increase)
 Because of their market power, can use
Price Discrimination, which is when you
divide customers into groups based on
how much they will pay for a good.
• Examples: Discounted airline fares, senior citizen,
student discounts
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Monopoly
Other Types of Monopolies (Legal):
Natural Monopoly: Market that runs more efficiently when one
supplies all of the product
Government Monopoly: Monopoly created by Government
Ex: Patent: license that gives inventor exclusive right to sell for a period of time.
Franchise: The right to sell a good or service within an exclusive market.
License: Gov issued right to own business
Copyright:
Industrial Monopoly: Rare situation where the government
allows a monopoly, such as MLB.
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3. Monopolistic Competition
4 Conditions of Monopolistic Competition
1)
Many Firms(but fewer than perfect competition).
2)
Products are NOT exactly identical, BUT VERY SIMILAR,
so companies use PRODUCT DIFFERENTIATION
Differentiation: making a product different from other similar products
3)
Slight Control Over Price: Firms must remain aware of
their competitor’s actions, but they each have some ability
to control their own prices.
4)
Few barriers to entry: May enter market easily
Monopolistic competition takes its name and its structure from
elements of monopoly and perfect competition.
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Conditions of Monopolistic Competition
The point is that firms in Monopolistic Competition must
use Product Differentiation & Non-price Competition to
sell their products.
Product Differentiation:

The real or imagined differences between
competing products in the same industry.
Non-Price Competition:
Notice these
commercials never
Non-Price Competition involves the advertising mention price.
of a product's appearance, quality, or design, rather than its price.
• Advertising helps the consumer believe that this product is
different and worth more money
4. Oligopoly
A market in which a two or three large sellers control
most of the production of a good or service and they
work together on setting prices.
Conditions of an Oligopoly
1)
2)
3)
Very few sellers that control the entire market.
Products may be differentiated or identical
High barriers to entry: Difficult to Enter the market because the
competitors work together to control all the resources & prices.
Big Challenge to Government due to price leadership,
collusion and cartels.
Collusion = an agreement to act together or behave in a cooperative manner.
Cartels = a formal organization of producers that agree to fix prices and
production (Most successful when limiting production and price)
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The Role of Government
Government has the power to maintain competition,
regulate monopolies, or to run government-owned
monopolies. It can also deregulate the market as
well, to allow businesses to take over that product.
 Since the late 1800s the US have passed laws to
restrict and regulate monopolies and trusts.
 Trust: a legally formed combination of companies.
(similar to cartel, ex: Microsoft, AT&T)
 Deregulation: the removal of some government
controls over a product (ex: trucking, airlines)
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